The Nation's Only Health Insurance Commissioner Takes on the Health-Care System

Rhode Island Health Insurance Commissioner Christopher Koller set out to transform an industry.

If proximity were a reliable guide to power, you would think Blue Cross & Blue Shield of Rhode Island has it and that Christopher Koller, the state’s health insurance commissioner, does not. Blue Cross & Blue Shield (BCBS) occupies space in a $125 million office tower that sits at the foot of Capitol Hill in Providence. Koller’s offices are in Cranston, nine miles south of the capital. His desk is in a building that used to be the old state almshouse, next to what was once the state house of correction and the asylum for the incurably insane. "The joke goes," Koller says of the occupants of the Cranston buildings, "that it used to be criminals, the mentally ill and poor people -- and now it’s state employees."

If size were another guide to power, you'd have to give it to BCBS again. The insurance giant employs some 1,100 people in Rhode Island. Until recently, Koller had a staff of just three dedicated employees -- an executive assistant, an attorney and himself -- but a federal grant has allowed him to double his workforce to six.

Yet sit down with BCBS of Rhode Island CEO James Purcell, and you'll hear a very different assessment of the balance of power between Koller’s office and the state’s $3 billion commercial health insurance industry. "We are probably the most heavily regulated insurance industry in the country," Purcell says. And that, he adds, is largely a function of Koller's unique job: He is the nation's only health insurance commissioner.

"In the old days, when there was just an insurance commissioner," Purcell says, "he or she had a lot more to do, which from my old-school perspective was a good thing." But now, he continues, "what does Chris think about every day? He thinks about us." And in Koller’s case, thought has given rise to radical action.

In the winter of 2007, Koller made a decision that took him well beyond the scope of activities common among even the most aggressive state insurance commissioners. Instead of reviewing rate increases, preventing plan insolvency and fielding the complaints of policyholders, Koller addressed the affordability of the health-care delivery system as a whole.

His admirers see his approach as nothing less than groundbreaking. "He is the person in government who can have an impact on the private delivery system," says Lt. Gov. Elizabeth Roberts, who as a state senator sponsored the legislation that created Koller’s office.

But to insurers and some providers, Koller’s approach has been deeply unsettling. "There is a very uneasy line between who manages Blue Cross Blue Shield," Purcell says. "That's really my job, not his." Some critics have gone even further. In late 2010, the state’s most powerful hospital group, Care New England, went to court to stop Koller, charging that the health insurance commissioner had become "a rogue operator."

Surprisingly, behind these very different assessments of Koller's actions, there is an underlying agreement about what he has sought to do. Koller, says Roberts, "has tried to use it as an office that could reform the system, not just regulate it." In the process, what started as a seemingly quixotic effort may well emerge as a model for health insurance regulation, if Koller’s attempt to take on two of Rhode Island’s most powerful industries -- hospitals and health insurers -- doesn't do him in first.

The Role of State Insurance Commissioners

Insurance regulation is one of state government’s oldest functions. Most states have insurance departments that date back to the late 19th century. Their purpose today is strikingly similar to what it was back then: insuring that the policies purchased by consumers are backed up by real companies with real financial assets.

"Every insurance commissioner, regardless of their political party, has a duty to ensure solvency of the marketplace and to protect consumers," says North Carolina insurance commissioner Wayne Goodwin. That means not only ensuring that the rate is not discriminatory or excessive, but also that it's adequate enough for the company to maintain solvency and not breach its policyholder obligations. Setting the right rate, says West Virginia insurance commissioner Jane Cline, is "a balancing act."

Historically, being an insurance commissioner hasn’t been an unduly demanding job. Only about half of the states require commercial insurers to seek prior approval for rate increases, and until recently, insurance commissioners spent only a small portion of their time focused on health insurance. That has changed, thanks to rapidly rising health insurance premiums and to the passage of President Obama’s health-care reform legislation, the Affordable Care Act.

Although rising premiums and health-care reform are often linked in the public mind, the first development preceded the passage of the second. A recent Commonwealth Fund study tells the story. Between 2003 and 2009, health insurances premiums for businesses and their employees nationwide jumped by 41 percent, while per-person deductibles rose by 77 percent. Some states have seen even more dramatic increases or proposed increases. Last spring, Anthem Blue Cross shocked California regulators by announcing plans to increase premiums for individual health insurance policies by more than 30 percent. Outside actuaries found problems with their assumptions, and Anthem retreated, but another big California insurer, Blue Shield of California, recently announced a third round of rate hikes for individual policyholders that will bring total rate increases for some individual insurance policies to 59 percent. At the current growth rates, the cost of the average family policy, which was $13,027 in 2009, will top $23,000 by 2020.

State regulators have watched these increases with mounting dismay, and several have been in the forefront of taking action to reign in rising premiums. A particular focus of concern has been health insurers’ reserves, particularly the building up of surpluses beyond what is necessary to meet solvency requirements. "We are now saying," says Mike Kreidler, Washington state’s insurance commissioner, "'Wait a minute. Why are they continuing to build surpluses when they are not-for-profit insurers, and I am continuing to get double-digit rate increases?'"

Kreidler’s office is now working with the state Legislature to gain authority to take insurers’ reserves into account when making rate approval decisions. In Maine, Insurance Superintendent Mila Kofman also has sought permission to consider health insurers’ overall financial position when reviewing rate increases rather than focusing only on narrow actuarial analyses of the plans at hand.

Despite such attempts to control the rate of premium growth, even the most aggressive regulators say that there's simply not very much they can do about rising health-care costs. "Even with pretty comprehensive rate reviews, we can’t do magic,” Kofman says. "I don't think any insurance regulator can control medical costs. That’s just the reality."

It’s a sentiment most insurance commissioners agree with. But over in Rhode Island, Koller isn’t one of them.

Koller: The Sole State Health Insurance Commissioner

Koller's unusual attitude reflects his unusual position as not just insurance commissioner, but as health insurance commissioner. No other state (with the partial exception of California, which has the Department of Managed Health Care) has broken out health insurance as the responsibility of a distinct and separate office. Rhode Island did so back in 2004. The decision to create such an office came from the realization that the state did not have the information, much less the authority, to affect -- or even understand -- the relationship between insurers and providers in the large- and small-group insurance markets. The legislation that Lt. Gov. Roberts sponsored as a state senator sought to change that by creating an office with broad powers to improve the health-care system's quality, accessibility and affordability. What this would mean in practice, however, remained somewhat unclear -- until Koller took office in 2005.

Since then, Koller has engaged in what resembles, at least in some ways, a game of health reform "chicken," invoking his powers to demand changes while trying to avoid putting them to the test. It’s a high-wire act that causes even admirers to hold their breath. "The commissioner is moving ever closer to the precipice," says William Martin, the co-chair of the Office of the Health Insurance Commissioner’s advisory committee and the chief operation officer of a biotech company. "I don't know how much longer he can do that."

The first thing that strikes you about Koller is his height -- he’s 6' 7". The second is his wonkiness. Koller, age 49, first got interested in health-care policy as a junior at Dartmouth College. His undergraduate thesis compared and contrasted the case mix indices of for-profit and nonprofit hospitals. After graduating, Koller, a native of Rochester, N.Y., worked for a year with the Jesuit Volunteer Corps in Washington, D.C. Then it was on to Yale University to get masters degrees in management and religion. After working in various positions at an HMO in Buffalo, N.Y., Koller was offered a position as the CEO of the Providence-based Neighborhood Health Plan, a network of health clinics serving primarily low-income Rhode Islanders. By 2005, Neighborhood Health Plan had grown from 40 employees to 175; its budget was $174 million and it served 75,000 Rhode Islanders a year.

"It was a great experience," he says now. However, after nine years of running what had essentially become a Medicaid managed care plan, Koller was eager to return to the health-care policy world. So when Gov. Donald Carcieri offered him a position as the head of the newly created Office of the Health Insurance Commissioner, as well as assurances that he’d be a primary health-care adviser, he leapt at it.

Koller’s early steps were fairly traditional. At first, he focused on the politically volatile issue of BCBS's $300 million-plus reserves. A study commissioned by Koller but paid for by BCBS found that the insurer was, if anything, slightly undercapitalized. Koller also pushed such modest but effective measures as requiring the state's major insurers to send proposed rate increases -- and the assumptions of medical inflation and utilization that undergirded them -- to his office at the same time so they could be posted online. This step has allowed policymakers to examine differences in assumptions and has created pressure among insurers to avoid being seen as proposing the highest price increases.

As satisfying as these achievements were, Koller's primary goal -- promoting quality, accessibility and affordability -- remained elusive. When he pushed the state's two primary insurers to report on what they were doing, he got what he describes as "a laundry list" of initiatives. Some seemed substantial. Others did not.

"I had seen at Neighborhood Health Plan how one health insurer comes in with one plan, and another comes in with another plan," Koller says. "Doctors do not want to differentiate how they provide care based on who's paying the bill. Having health plans send them different instructions was tremendously counterproductive."

So in the fall of 2007, Koller convened an advisory panel to help him develop a different approach -- one that sought to define priorities for the state's commercial health insurance sector as a whole.

Pushing for Change in the Health-Care System

Among academic researchers and health-care policy experts, there are certain areas of agreement about how the health-care delivery system could be changed and improved: A better functioning system would spend more on primary care. Care for people with diabetes and other chronic illnesses would be managed to prevent expensive and dangerous rounds of hospitalization. Providers would utilize electronic medical records to prevent redundant testing and to identify patients who need extra attention. Payments systems would move away from paying providers for the volume of services provided and instead pay for quality.

Citing the broad statutory language that created his office, Koller decided in the spring of 2009 to require insurers to do all four. Koller put forward four principles that he expected the state's three leading insurers to embrace. First, he asked insurers to increase the portion of their medical expenses that went to primary care by 1 percentage point for five consecutive years. The goal was to raise Rhode Island's primary care expenditures from a substandard 5.9 percent to something approaching such high performance systems as Pennsylvania's Geisinger Health Plan.

Koller's second requirement was that state insurers support the expansion of the Rhode Island Chronic Care Sustainability Initiative, which seeks to pair providers with case managers who can direct care for patients with chronic conditions. Providers would agree to meet a level of accreditation in keeping with the National Committee for Quality Assurance’s patient-centered medical home. Insurers would agree to pay a case management fee and fund nurse-case managers.

Koller’s third condition was that insurers implement meaningful incentive programs for physicians to adopt electronic medical records. Finally, he asked insurers to commit to a serious discussion aimed at overhauling the payment system as a whole.

The reaction to Koller’s demands was euphoric from certain sectors, notably primary care providers. From insurers, however, the reaction was mixed. Ultimately, insurers like BCBS’s Purcell agreed that "directionally this was correct." After all, many of Koller’s ideas were inspired by projects that BCBS had already begun. But there was another consideration as well. In addition to pressuring insurers, Koller was preparing to take on one of the biggest cost drivers in health care -- rising hospital costs and utilization.

Tackling the Issue of Rising Costs

The situation in 2009 crystallized the issue. That year, the state’s three major commercial health insurers filed for double-digit rate increases. As Purcell remembers it, "We were in the depths of the recession, and a number of community leaders, including the governor, asked if there was any way to skip an increase. I said, 'Governor, if I were you, I would be asking that too, but to agree to inadequate rates does nobody any favors.'" Purcell argued that if the state made BCBS rates inadequate by 5 percent, then "next year it will be whatever it is next year plus that 5 percent.'"

Rhode Island’s public officials disagreed. That year, Koller approved a much smaller rate increase. His decision cost BCBS approximately $100 million dollars. However, Koller and the business community took to heart one of insurers' primary arguments -- that hospital costs, primarily increases in outpatient utilization but also prices, were one of the major drivers behind rising premiums. A study of insurer contracts with hospitals produced by Koller's office in January 2010 came to a conclusion already supported by the literature: Consolidation of hospitals makes cost containment difficult. In Rhode Island, that was particularly true for insurers dealing with Care New England, a local hospital group that included Women & Infants Hospital in Providence, where 80 percent of the babies in the state are born. As Purcell notes, "It is essentially unthinkable not to have Women & Infants in your network." And that made negotiations with Women & Infants difficult.

And so in early 2010, Koller extended his delivery overhaul efforts to the state's hospitals as well. In doing so, William Martin, who chaired Koller’s advisory board, knew that the health insurance commissioner would be "poking the bear a little bit." But Martin agreed that such actions were necessary, given the structure of Rhode Island’s health-care system. "There is no competitive force in the marketplace," Martin says, adding that Koller's office "has to come in and put that force in through regulation."

Although Koller has no oversight authority over hospitals, he and his counsel decided that he did have the authority to present "contracting principles" that would guide insurers in their dealings with hospitals. In July 2010, he put forward six of them, among them provisions requiring quality incentives and standards for care coordination and simplicity. Perhaps the most controversial of all, however, was a provision that would cap the guaranteed rate of hospital cost increase at the level of the Medicare consumer price index, which in 2009 amounted to a mere 2.7 percent increase. In doing so, Koller was engaging in the kind of high-stakes bluffing he had perfected in dealing with insurers.

"As a regulator, you have a variety of choices about how you communicate," notes Koller. At one end are formal regulations. At the other end is oral advice. In between there can be bulletins, guidance and information sheets. "I have specifically chosen to communicate this guidance as written guidance coming from the office, not as formal regulations -- although that may change going forward -- with the understanding that failure to comply with this guidance will be taken into consideration during the annual rate review. So it is very important to have the rate review process in place and functioning."

But this time, Koller apparently overstepped. Care New England filed a lawsuit against Koller’s office, seeking to block the insurance commissioner's new conditions, saying they were an impediment to negotiations with UnitedHealthcare of New England. In December, Koller settled part of the lawsuit -- a setback for now.

The health insurance commissioner has not, however, given up on his goals. Despite all the tools and pressures he's put in place, premium increases in Rhode Island are not significantly lower than in surrounding states. All of his actions, he points out, are consistent with what it takes to keep a lid on rates of increase. "Communities that are good at this are ones that have an emphasis on primary care, payment reform and systems measure, and have delivery system leadership," Koller says. And he remains determined to ensure that Rhode Island is one of them.